Asean’s Churlish Charm Offensive

Asean stock markets led by the Philippines’ 30 percent spurt were in the spotlight as re-elected US President Obama and IMF Director Lagarde embarked on commercial and diplomatic offensives there to solidify multilateral crisis and bilateral free trade support. The Fund received additional credit lines for its doubling of resources agreed after the former French finance minister took the helm, and Washington completed another round of Trans-pacific partnership pact negotiations as an historic chief of state visit to Myanmar marked an element in the Administration’s Asia repositioning strategy. Before the swing Malaysia drew North American attention with oil company Petronas’ bid to acquire Canada’s Progress Energy, which was rejected for “no net benefit.” The new chief executive in place since 2010 has embarked on global expansion and tried to reduce its transfer to the budget amounting to 40 percent of the total, as such moves and a wave of IPOs have revived foreign investor interest in the Kuala Lumpur Exchange. Prime minister Najib has stoked domestic demand with pre-election fiscal largesse leaving a 4 percent deficit on 5 percent economic growth. Postponement of food and fuel subsidy adjustments has kept inflation in the 2 percent range, with the central bank on hold as international appetite remains strong for both conventional and Islamic-style government paper. The ruling party hopes to regain its two-thirds majority after the previous watershed post-independence defeat but the opposition has diverted Chinese backing and earned sympathy from a harsh security crackdown on rallies. In the balance of payments, the current account surplus has dwindled with electronic assembly and commodity earnings corrections. Fears persisted that the accounts could follow neighboring Indonesia into outright deficit, but Jakarta tipped into the positive column in Q3 spurring $4 billion in portfolio inflows. Despite a credit slowdown consumption continues to undergird 6 percent GDP growth as palm oil and coal export prices are weaker. The investment promotion agency has launched a road show designed in part to neutralize the fallout from the Bakrie Brothers saga, which opened another chapter with a Rothschild counteroffer for the London-listed conglomerate.

The Philippines is poised to touch investment-grade territory after a Moody’s upgrade as foreign buying of equities is up 40 percent to $2 billion. Tax collection has improved and President Aquino has signed a peace deal with the Moro rebels in Mindanao. Public debt/GDP has fallen to 50 percent and $20 billion in annual remittances continue to bolster the current account and currency. Business process outsourcers have taken business from India, and tourism has jumped with a recent open-skies accord. GDP growth will be 5 percent on 3.5 percent inflation following agriculture cost pressure from October flooding. An anti-corruption drive has ensnared ailing former president Arroyo, accused of embezzlement while in office detracting from her image as a wealthy establishment representative and highly-educated economist.